Is property headed for 1.5% p.a?

One survey shows that ‘experts’ are predicting price growth of just 1.5%. What do they know that we don’t? Or are they just nuts?

An interesting headline caught my eye the other day: “Property experts see growth of just 1.5% pa.” I saw the same data reported with the headline “Price Hopes Fading”.

What? Who are these experts and where did they come up with this outlandish figure.

Turns out it comes from the NAB survey of property professionals.

This is the chart here, which tracks their expectations of future price growth.

The thing to note here is property expert expectations are remarkably stable. Over the last couple of years they’ve stayed within a band of +/-2%.

Now hang on a second. Property prices grew close to 10% last year. So are we saying that property experts ‘missed’ this figure by over 8%?

That’s a big miss. If my experts were getting it that wrong, I’d be finding some new experts.

(No, I wasn’t one of their experts. Maybe it’s in my spam folder…)

So it seems fishy to me. Sounds like there’s something in the way they’re asking the question, or in the way they’re collating the data together.

So maybe the numbers are no good, but perhaps we can get a useful read on the market from the ‘change’ in their expectations.

And that’s probably what the ‘price expectations fade’ headline was about. Price expectations were down a fraction in Q4 2014.

Well, so what? That’s not unreasonable. 2014 was a big year, full of hype and promise – the first big cycle after the GFC. And so people are expecting things to be a touch more settled this year.

I don’t think that’s unreasonable.

But look at expectations going out to 2016. In 2016, they’re expecting price increases to be back at record levels (a massive 2%!). Leaving the level aside, it’s the strongest expectations in several years.

The last time they were that strong, we were posting double digit growth (in the real world).

So to me it seems like a very long bow to draw to say that these results means that price hopes are fading, or the market is softening, or whatever headline they want to come up with.

The other thing to note is that the national results are being pretty much being dragged down by two markets – WA and SA/NT.

I don’t know how much sense it makes to lump SA and NT together. The NT is such a small market, and at the maturing end of a boom. SA is much larger, and at the end of a consolidation phase.

It’s comparing little apples with big oranges.

And property experts in WA are doing it tough right now, it seems. They’ve totally got the glums.

But then they’re hopeful about the future. In two years time they see WA falling back in line with the rest of the country, and doing pretty well. So the future’s looking up.

So all of that suggests to me that you’ve really got to want to tell a negative story to pull one out of this data. Maybe I’m missing something, but it doesn’t look all that bad to me…

There were a few other titbits in the survey results that are worth a look.

The first is about foreign purchases of property. This chart here shows there’s been a strong upward trend in foreign purchasing of both new and existing property, kicking off around Q3 2011.

The new property share is down a touch to 15%, but still on a huge upswing. The existing property share is up to almost 9%, continuing a steady upward trend.

NAB says that in Victoria, 1 in 3 buyers of new property are from overseas – a figure that in my guess has been driven by inner-city apartment sales. Look at this chart here – Victoria’s going through the roof!

All this squares with the anecdotal evidence we’re hearing about foreign buyers having a major impact on the market.

On these figures, 1 in 7 buyers of new properties are from overseas. For existing properties, it’s 1 in 11. That’s significant. And it seems to me there’s still plenty of room to grow here – particularly with global markets going where they’re going.

There is something a little odd with the existing home sales data though. If you do the maths, 9% equates to around 40,000 homes last year.

But last year, the FIRB reported that it received applications for and approved sales of 5017 existing dwellings to foreign nationals.

Something doesn’t add up.

Are we saying 35,000 foreign nationals went under the radar? Are we saying that only 12% of foreign buyers who bought existing property went through the proper channels?
And the FIRB has had zero prosecutions in seven years?

These are the hard questions that need to be asked. We saw some good work from O’Dwyer’s review last year. They got the right end of the stick. Let’s hope that insight translates into action.

The other titbit that’s interesting is the read on first-home buyers. According to NAB, for both new and existing developments, first home buyers make up a quarter of the market – that’s a figure in line with historical averages and shows no evidence of FHBS being squeezed out of the market.

And when you break it down, about 16% of the market are FHB owner occupiers, and about 8% are FHB investors (this is the first time they’ve included this info in the survey.)

This is the new FHB investor class I’ve been talking about, and squares with the figures I revealed last week – figures that showed that 1 in 3 FHBs were skipping the primary place of residence and going straight to an investment property.

That’s a figure that’s on the rise. It will be very interesting to see where it levels out.

Comments

Jon, Interesting article. Seems the FIRB are getting wrong figures and aren’t doing their job in managing foreign investment.
Melbourne, like Perth, will eventually become flooded in city units and rental vacancy rates will increase and prices will drop. The only reason for predicted increases property prices in Melbourne is a belief in continuation of foreign investment growth in the Melbourne market. That won’t continue for ever.
I think the pessimistic outlook for Perth property price growth is well founded especially for CBD units which are already oversupplied and more are being built.
There is still a building boom in Perth. This is due to the lag between the decision to build and the recent downturn in commodity prices. There is a shortage of tradesmen in Perth, due to the building boom, so unqualified foreigners are building Perth houses. My inlaws have just had all the walls levelled on the house they are having built through a major Perth builder, due to poor workmanship from Irish Brickies. Unfortunately this is now a common problem in Perth.
It would be interesting to see the figures on house starts in each of the states as that would tell a more complete story.

Hi Jon, What do you think of Toowoomba, as in do you see its growth growing to 10 or 20% gain in the next 2 yrs or 5 yrs ?. And whats your view over the long term say 10 yrs.?
As far as Irish brickies, thats funny as ive worked in the mines and gas works and some and I say some, wouldn’t have a clue so that doesn’t suprise me much.

I have properties in Sydney’s nth west Jon, how do you see the growth there in the next 5 yrs?

I am totaly comfused. If intrest rates backs up then property prices increas …… which makes it difficualt for FHB to make their purchasing particularly for investment , as rental value will be less than intrest rate compared to total property value….

Hi jon Please bear with me…. When foreign nationals buy a property that adds money into our economy.. which is good and bad… When they sell why doesnt the FIRB chase up the capital gains that will add more to our economy. By chasing capital gains will discourage foreign real estate investment make property more available to FHB (occupiers and investers) and ausie investers and keep our property values real. I think you will find that the big end of the market is being supported by Governmental decisions…. You scratch my back….

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